The Council of Ministers of Thailand approved a draft bill this past week that will allow the country's Ministry of Industry to shut mills that produce substandard steel.

The new law will stipulate the type of raw materials to be used and ensure that the quality of products made in mills are in accordance with the Factory Act of 1992, industry minister M.R. Pongsvas Svasti told Thailand's Bangkok Post newspaper.

Consequently, all steel plants in the country will have to produce steel according to the standards of the Thai Industrial Standards Institute, Svasti added.

The new law could mean a drop in the usage of substandard steel, according to Prasit Rattanakijkamol, a steel analyst at Bangkok-based Asia Plus Securities Public Co. Ltd. "If the government is serious in solving the substandard steel problem, it could easily identify the mills where the substandard steel in the market come from," he said.

It isn't clear how much substandard steel is circulating in the market, but some sources have said that as many as 40% of buyers in the market are using such material.

"The use of substandard steel is very common in Thailand. Substandard steel is cheaper, so many people in suburban areas or the countryside use substandard rebar and wire rod to build their houses," Rattanakijkamol said.

"There is a (shortage) of rebar and wire rod in Thailand. We still need to import," Wikrom Vajragupta, president of the Iron and Steel Institute of Thailand, said. "Some small mills are taking advantage of the situation by rolling rebar in sizes that are smaller or lighter (than what is specified)."

It was hard to watch these mills in the past because they were producing on and off, Vajragupta said. "But with the new law, the government wants to make it clear that any companies that are caught producing substandard steel can be shut down," he added.

Companies that produce quality steel, such as Tata Steel (Thailand) Plc, Bangsaphan Barmill Public Co. Ltd and Millcon Steel Industries Plc, will benefit if these plants are shut down, Rattanakijkamol said.

Tata Steel Thailand - the market leader for rebar in Thailand, with 25% market share - has said that it has been educating the market on the dangers of using substandard steel.

The draft bill follows a raid on two warehouses and a steel rod plant in Bangkok and Samut Sakhon provinces in January that were accused of producing substandard steel rods for distribution nationwide.

The Department of Special Investigation, part of Thailand's Ministry of Justice, raided a warehouse in Bangkok's Chom Thong district, confiscating 39,000 substandard steel rods weighing about 108 tonnes.

Another warehouse owned by Worapaibul Metal Co. in the Bang Khunthian district of Bangkok was found with 55,920 substandard steel rods weighing about 73 tonnes.

The third site - located in Tambon Phanthai Norasing, in the Muang district of Thailand's Samut Sakhon province and owned by BKK Steel Mill Co. Ltd. - allegedly served as the production base. Authorities found 13,900 substandard steel rods weighing 109 tonnes at the site.

The seized rods had a combined market value of about 16 million baht (US$506,000).